Bankruptcy for Renters: Key Things to Consider

Home is where the heart is – and it’s also where the source of financial trouble may be, for millions of people here in Chicagoland and around the country. If you’re a renter who is considering filing for bankruptcy, it’s important to go into this process with an idea of how it may affect you, depending on your specific circumstances.

Executory Contracts and Unexpired Leases

Broadly speaking, residential leases and apartment agreements are considered to be “executory contracts” when it comes to bankruptcy (other examples of executory contracts or unexpired leases may include car leases, service contracts, insurance contracts, and so on). 

In short, it may help to think of an executory contract as one in which a debtor and another party must both keep up an important performance. In the case of residential rentals, the landlord agrees to provide space as long as the tenant continues to stay current on payments. 

As a result, debts stemming from rental agreements and other such contracts/leases are often categorized as unsecured debts, and may be discharged in bankruptcy. 

Pursuing Bankruptcy: What Does It Mean for Renters?

With that said, however, it’s important to keep in mind that the bankruptcy process is often not so cut-and-dry. There are many different variables and moving parts to factor in, especially for renters, who may find themselves in a particularly unique or shifting situation as they deal with debts and mounting financial troubles. 

It’s also important to remember that pursuing bankruptcy will have different outcomes for different people, depending on the unique variables of their circumstances. One of the most effective steps you can take as you weigh bankruptcy as an option for financial relief is to consult with an experienced bankruptcy attorney in your local area. A bankruptcy attorney can help you consider all of your options and understand how bankruptcy may impact you, factoring in the conditions that are unique to your situation so that no detail, however minor, goes overlooked. 

So, in the broadest of strokes, what may happen in the event that a renter pursues bankruptcy? The short answer is that it depends – on the renter’s financial situation, their history with their landlord, and the type of bankruptcy that they pursue. 

Generally speaking, there are two primary choices for executory contracts and unexpired leases in bankruptcy – to assume or reject. You, and your bankruptcy trustee, will make this choice with regards to your rental agreement. You may assume the agreement if you want to remain in the apartment, and reject it if you want to terminate the contract as-is. Assumption may come along with the negotiation of new terms, such as commitment to paying back-rent in part or in full, or committing to making all future payments on time. In the event of a rejection, you must generally vacate the apartment in exchange for having your past due arrearage discharged as a non-priority unsecured debt in Chapter 7. If a lease is rejected in Chapter 13, the tenant will typically still owe any unpaid past due rent or damages, though the amount they will ultimately pay will depend on the amount and type of their debts, and the amount they have available to pay claims.

One thing to keep in mind? In many cases, trustees tend to reject executory contracts, as they are often perceived as financial liabilities. You will then generally get the personal choice to reject or assume in your Chapter 7 proceedings or Chapter 13 plan.

Eviction and the Automatic Stay

Another important consideration? Many renters who are considering bankruptcy are curious about the effects of the automatic stay, and whether bankruptcy can offer protection from eviction. 

First up, the automatic stay does indeed offer certain protections to tenants, and may bar landlords from making contact and demanding payment of past due rent or using a deposit to pay past due rent. 

When it comes to eviction? Generally speaking, bankruptcy laws largely determine that landlords can usually proceed with an eviction if they won a judgment for possession prior to the tenant filing for bankruptcy (there are limited exceptions to this rule, in some states). On the other hand, a landlord may not deliver a termination notice or begin the eviction process after the tenant has already filed for bankruptcy, due to the protections of the automatic stay. In order to pursue eviction, a landlord must go to court to have the stay lifted. There are also limited exceptions here; for instance, a landlord may be able to proceed with eviction if they can certify in court that the tenant endangered the property or used illegal drugs on the property. 

Understanding the Details and Keeping the Conversation Going

It’s crucial to remember that the specific circumstances around bankruptcy will vary from person to person, or case to case. Similarly, it’s important to realize that the bankruptcy process can be complex and emotionally trying. Bear in mind that what comes immediately before and after bankruptcy can have a huge and lasting impact on your financial future.

While it is not strictly required to bring on an attorney for bankruptcy matters in the state of Illinois, many consumers will find that this process is made easier – and, ultimately, more productive and beneficial in the long term – with the assistance of an experienced legal professional.

That’s where the Gunderson Law Firm can step in. At Gunderson Law Firm, we strive to protect our clients’ assets to the full extent allowed by today’s laws throughout the complex bankruptcy process, helping them get the debt relief they not only need, but genuinely deserve.

Moving through the bankruptcy process, we can also counsel you on realistic ways to avoid serious debt issues in the future. Whether you are a business owner, a wage earner, retired, or otherwise, we can address your specific situation with strategic plans to help put severe indebtedness behind you, so you can enjoy life again.

Looking for a second chance? Curious about how debt can impact renters here in Chicagoland?  Interested in learning more about bankruptcy and realistic financial planning as a way to leave debt in the past? Feel free to drop us a line or give us a call whenever you’d like to get the conversation started.

2019-09-18T14:14:15-05:00 September 26th, 2019|Community|